Effect of Globalisation on India - Case Study Example

Effect of Globalisation on India College: Name: Students ID: Date: Course Name: Unit Code: Time: Instructor: Introduction The term globalisation has grown from the last century to now dominate the world following the end of the cold war and the disintegration of the ex-Soviet Union; the world is now variously referred to as a ‘global village’. Globalisation has been seen to be the main agenda in developing countries propagated by World Bank along with other International organisations through the introduction of structural adjustments. Many of these countries are now opening up their boundaries owing to the augmented dependence on the international market economy and the new faith in private investments and capitals. Globalisation has come along with fresh prospects for developing countries. There is better access to markets in developed countries and technology transfer hold out capacity for enhanced productivity and advanced living standards (Stiglitz, 2002). On the other hand, globalisation has introduced fresh challenges such as expanding the inequality gap across as well as within the countries, financial markets volatility and environmental degradation. Also, a quite a number of developing countries remain indifferent regarding the process. Closing down to India, the country had tough restrictions to the liberalisation of trade and investment and financial flows till the nineties that constrained globalisation. However, as of the nineties India has gradually pulled down the barriers to external competition and speeded up the pace of globalisation. This paper presents an overview of globalisation in perspective of India regarding the opening up of the Indian market and the beneficiaries. The Debate on Globalisation Globalisation is now a prevailing actual feature of the new global economic order that exemplifies one of the most powerful forces that direct the imminent progression of this sphere. It has various dimensions: economic, social, political, security, health, environmental, cultural, and others, but the centre of attention here is economic. Even though the term was coined in the 1980s, up till now it has no singular formal definition. The concept does not have the same interpretation to different people. It could be said that owing to these dissimilar interpretations, there are exactly unlike rejoinders to globalisation. Whereas some policymakers, researchers, and activists perceive it as a power for moving the world economy forward, some of their colleagues perceive globalisation as a solemn threat to the global economic order. For instance, Brainbant defines the globalisation process as not only a means of opening up international trade, developing innovative communication channels and infrastructure, internationalisation of financial and capital markets, rising position of multinational corporations, along with an overall movement of people, goods, data and intellectual property but also as a movement of contaminations, diseases and pollution (Scheve & Matthew, 2001). Therefore, in this paper globalisation is taken to be a way of increasing international trade and exchanges in a more open, cohesive, and borderless international market. Globalisation has led to an outstanding growth in trade and exchanges that include the traditional global trade in commodities, exchanges of currencies, technology transfer, capital movements, as well as a worldwide flow of data and ideas. This has been enabled through more openness in the international economy and a global integration of plus the crusade headed for a borderless world, all of which have predisposed to increased global flows. Over the past several decades globalisation has been attributed to various drives. One is the advancement in technology that has considerably reduced transportation and communication costs and radically sank the costs of processing data and storing and retrieving information. Globalisation is also attributed to trade liberalisation along with other systems of economic liberalisation that are the cause for reduced trade restrictions as well as a more liberal global trading system. The 1946 General Agreement on Tariffs and Trade (GATT) contributed significantly to trade liberalisation, this has progressed into the present day World Trade Organization (WTO). Indeed this has led to more reductions in tariffs and other trade barriers. There also has been an increase capital movements along with other factors of production. However, a number of economists and historians seen globalisation as a return of domination by the few top developed economies, especially the United States. The third key players in the process of globalisation are the institutional changes. Organisations today have an extensive reach owing to the technological changes where managers have access to more extensive horizons, sanctioned by the improvements in communications. As a consequence, corporations that were principally focused on local markets have stretched their choice in terms of markets and production abilities to a national, multinational, international and even a global scope. The resultant industrial structural changes have predisposed to increased power, profits as well as productivity of those firms that can pick out amongst many nations for their sources of materials, production facilities and markets, swiftly changing to shifting market situations. Almost every one main national or international enterprise has such an organisation or banks on on subsidiaries or strategic alliances to acquire a similar degree of influence and flexibility (Stiglitz, 2002). Globalisation has also been driven by the universal agreement on ideology, with a joint believe in the importance of a global market economy besides an open trading system. A key event to this were the political along with the economic changes in China’s 1978 reorganisations followed by a “falling dominoes” chain of insurgencies in Eastern and Central Europe in the early 1989 that led to the termination of the Soviet Union in December 1991. A convergence of ideology as a result of the previous separation among market economies in the West and socialist economies in the East resulted to a near-universal dependence on the international market system (Ojha, 2002). Globalisation in India The Indian economy went through major structural adjustments in the early 1990s. The country’s economic reforms were changed through Liberalisation, Privatisation and Globalisation (LPG model) so as to boost the growth of the Indian economy and to make it compete on a global scale. These reforms were intended to make the industrial sector, trade and financial sector more efficient. As of July 1991, a new economic chapter began for India plus her over a billion inhabitants. This era of economic transformation has had a remarkable effect on the general economic improvement of nearly all key sectors of the economy. In fact, the effects of the economic transition over the past two decades can almost not go unnoticed. In addition, it marks the dawn of the material integration of the Indian economy into the global economy (Nayak, 2004b). Globalisation has integrated the world economies through unrestricted trade and financial flows along with the shared exchange of technology and information. This also ideally takes in unrestricted movement of labour across countries. For India, globalisation has opened up the economy to foreign direct investment by availing facilities to overseas companies to participate in different sectors of the Indian economy be taking away restrictions and hindrances to the entrance of MNCs in India. At the same time Indian companies have been authorised to enter into foreign partnerships and as well supporting them to set up strategic alliances, such as joint ventures, out of the country; through a substantial import liberalisation agenda by replacing quantitative limits by tariffs and import duties following the 1991 policy reforms. However, it has been noted that the process of globalisation has topped the agenda of international institutions and organisations mainly the International Monetary Fund (IMF), World Bank and World Trade Organization (WTO). These international bodies have developed domineering policies that support the agenda of developed countries like the United States of America (USA). In fact, American MNCs account for a huge chunk of the amount FDI entering India post the 1991 period. Developing countries like India have been essentially forced to embrace full globalisation by opening up their local markets to international trade by dropping synthetic restrictions to such trade. But we see that only a few privileged players have been able to reap huge benefits from globalisation (Mahtaney, 2010), a process that was originally intended to be a trade association involving all parties. In India it is clear that majority of the foreign companies have acted quite indifferently up until the regulations well-matched their entire drive. For instance, two leading American automobile companies, General Motors and Ford set up their operations in India as early as 1928-30. The companies reaped handsomely from the monopolistic power in India for over 20 years up to 1953. In 1953, the Government of India (GOI) voted for a directive requiring companies from foreign countries to manufacture cars locally. However, what happened is that these companies decided to halt their operations. In a twist of events the same companies came back to India in 1995 the minute the policies favoured them. Besides, in the 1960s, the GOI instructed companies from foreign companies to take in local membership in their existing equity, again a lot of them responded unfavourably. As a result, in 1961 Pepsi drinks terminated its operation just after it entered India in 1956. Again following the enactment of Foreign Exchange Regulation Act (FERA) in 1973 many companies not desiring to rise equity membership of Indians as per Section (2) of FERA opted to cut off their operations in India. This came as a key hold-up to numerous foreign companies operating in India and up to 54 of them applied to terminate their activities by 1977-78, 9 foreign companies left between 1980-81 (Annual Reports, Reserve Bank of India 1977-78, and 1980-81). This included a number of well-performing companies such as Coca-Cola and IBM. IBM had set up operations in India in 1951 and had already put up a manufacturing plant in 1956. India was IBM’s leading commercial destination in the entire Asian continent by 1976. The company opted to close down its operations in 1978 but IBM lastly came back to India just after the 1991 economic liberalisation reforms came into effect. The frustration arising from dealing with MNCs that only want to benefit themselves met the Indian Government in a bad way. Even at the time the government casually advised the foreign companies to put their money in businesses that the GOI could not invest in, such as oil mills, fertilizers and chemicals, lots of these companies only considered their profitability seeing as spending in such disparate areas would shrink their success. As usual many of them object and then leave India. It is a few companies like Unilever and ICI that opted to put their money in such areas that would benefit the country and they ended up having an outstanding success in India. The GOI also introduced policies that would bring forth foreign exchange into the country. The policies required the foreign companies to export a percentage of what they produced locally from which they would earn royalty payments to the parent organisation. However, this did not auger will with a lot of these foreign companies as majority of them were in India to take advantage of its population to market products they produced in their home countries. A case in point is for the duration of 1958-61 when almost 100 companies from USA that had invested in diverse sales and marketing and licensing undertakings in India only aimed at filling the demand of the local market place. Again just a few companies such as Unilever and ITC started to export their products as requested by the Government to spawn foreign exchange for the host country (Balakrishnan, 2011). Table 1: Government Policies and Foreign Companies’ Response Globalisation has also led to the industrialised countries to take advantage of the different Overseas Development Assistance (ODA) that they have stretched to India over the past several decades. India receives three different forms of ODA; soft loans, small grants and commercial credits. The loans and credits stretched to India are at higher rates or rates that are at par than the loaning rates in the countries that arrange for these loans and credits. Even though the ODAs are intended to help India develop and fit in to the larger global economy, the construction and conditions involved noticeably express the resolve and impetus of the foreign governments. For instance, the Grants India has received from the UK have been tied up with imports, consultancy and training services from the UK. Germany’s commercial credits and soft loans have been tied up with the energy sector reforms in India. This is also seen with ODAs from France, Denmark, Belgium, and Japan that are tied up with imports to India from the individual countries. In addition, France ensures that the contracts of the project conversation they fund have to go to French companies. Countries such as Switzerland, Italy and Australia tie up their ODAs to India in the form of technical assistance and other kinds (Sharma, 2000). Table 2: Examples of ODA from developed economies and the associated ties Country Development Assistance Conditions United Kingdom Grants Imports, training and consultancy services from UK Germany Commercial credit, grants, soft loans Poverty alleviation, employment and energy sector reforms Italy Loans Provide equipment and technical services Australia Grants Provide equipment and technical services Switzerland Grants Provide equipment and technical services The ILO Report (2004) as regards the impact of globalisation, especially on the growth of India, stated that there had been victors and scums. Globalisation has benefited the educated and the rich. In particular, the information technology (IT) sector has greatly benefited. However, it points out that the benefits have not yet stretched to the majority, and new risks have emerged for the losers the socially underprivileged and the rural poor. In deed many of the non-perennial poor, who had toiled from dawn to dusk to elude poverty found that their gains were being overturned. Power was flowing from chosen local institutions to strange MNCs and international bodies. The western perceptions that were introduced and did dominate the globe media clashed with the local context; they cheered consumerism in the midst of great poverty (Nayak, 2004a). Conclusion In a nutshell, globalisation has taken over the way activities are conducted in the current day across and within borders. It has benefited many countries, especially the developing countries, by opening up their economy which has allowed for technology transfer, infrastructural developments and improved communication and exchange of information. As regards India, the benefits the country has raped since loosening the trade restrictions in the 1990s cannot be wished away (Nayak, 2004b). The country has been an easy target for foreign direct investment particularly from leading global MNCs given its vast population the offers a good market for their products and the cheap labour that has seen some foreign companies set up production plants in the country. Nonetheless, despite the hype around globalisation it is clear that only few privileged players benefit. In the case of India, the chronological account of globalisation in the country reveals that foreign companies have been attracted there for their own gains. Their sole target is to access the big Indian market to sell products they produce back at home. This clearly proves that, “…globalisation is not about unleashing opportunities worldwide but about consolidating access to markets by a few privileged players…Although the benefits have been substantial, the beneficiaries have been few” (Mahtaney, 2010, p.191). References Balakrishnan, C. (2011). Impact of Globalisation on Developing Countries and India. Economics at About.com. Retrieved August 9, 2011, from . Bourguignon, Francois and Christian, M. (2002). Inequality among World Citizens: 1820-1992, American Economic Review (Sept) 727-744. Foreign Direct Investment. (2011). India Knowledge Centre. Retrieved August 18, 2014, from . Scheve, K. and Matthew, S. (2001). Globalization and the Perceptions of American Workers. Washington, DC: Institute for International Economics. Sharma, K. (2000). Export Growth in India: Has FDI Played a Role? Discussion Paper, Yale University, Economic Growth Centre. . Stiglitz, J.E. (2002). Globalisation and its Discontents, Alien Lane the Penguin Press, London. Mahtaney, P. (2010). India, China and Globalisation: The Emerging Superpowers and the Future of Economic Development, Institute of Southeast Asian Studies. Nayak, A.R. (2004a). Globalisation Process in India; A Clash of Development Objectives of Host with Growth Objectives of Foreign Companies, IInd International Conference of Association of International Business-India Chapter, Loyola College, Chennai, January 14-16. Nayak, A.R. (2004b). Successful Foreign Direct Investment in India: A Case of Suzuki Motor Corporation, Global Business and Economic Research Conference, Istanbul, Turkey, August 04-06. Ojha, A.K. (2002). Globalisation and Liberalisation: prospects of new world order. An International Journal of Ideas. Read More